Cash back. Free smoke detectors. Hot rotisserie chicken and a side of beans.
Today, the staid corner banks are offering up enticements to get people to borrow against their homes. And that means consumers can find solid deals that make taking out a home equity line of credit one of the best — and easiest — ways to borrow.
Commerce Bank & Trust Co. in Topeka, Kan., since June has been using common inducements: cutting deals on introductory rates and closing costs.
“That’s what the market takes right now,” says Scott Wilson, vice president for consumer loans.
A consumer’s dream
What may be a disadvantage for profit-hunting shareholders is often a consumer’s dream, and nowhere is that paradox more evident than in the home equity lending business. Lenders consistently say it’s a buyer’s market out there for lines of credit. And that leads to widespread industry promotions because consumers can get away with demanding more than flexibility and tax-deductible interest.
“We just came off a no-fees home equity where the bank paid to have the title done, paid to have the mortgage recorded, and had no closing fees,” says Ann Davis, a loan officer with Paris, Ky.-based Bourbon Bancshares Inc., which operates Kentucky Bank. “We have branches in seven counties, and in all seven of those counties, it probably doubled the volume.”
Interest breeds choices
Because of the flurry of activity, most home equity borrowers should have no problem finding a line with a common bank offer: no closing costs. Those charges usually total around $300, and may include a title search to verify a borrower’s ownership, an appraisal to confirm the home’s value and a credit report.
As for introductory rates, borrowers at Commerce get either a 7.9 percent or 8.4 percent rate for one year, depending on how much of their home’s value they want to access, for instance. At Charter One Financial Inc., on the other hand, customers can opt for a 6.5 percent rate during the first six months.
“We’re really demonstrating our commitment to this product,” says William Dupuy, senior vice president for marketing at Cleveland-based Charter One. “They’re an attractive product for the customer, and they’re also, from a profit point of view, very attractive to the institutions.”
Ongoing costs, however, are built into some home equity line agreements. Lenders charge anywhere from $25 to $50 a year in maintenance fees, meaning customers could end up paying the equivalent of their waived closing costs in as little as six years.
Beyond these two standard perks, however, bank offers can get truly bizarre. Charter One lets customers defer on the introductory rate, instead accepting $20 cash back for every $1,000 they put on a home equity line when they open it, up to a maximum of $10,000. But if borrowers pay off more than 25 percent of that initial balance in the first year, the bank takes the money back.
First Chicago NBD Corp. recently offered customers a rebate as well, offering them up to $500 worth of their first month’s interest. And LaSalle Bank, a Chicago-area division of the Netherlands financial services conglomerate ABN AMRO Holding NV, currently gives out United Airlines flight vouchers.
Applying for a home equity line earns a $50 certificate under the program. Opening and immediately “activating” the loan nets even more. Someone who puts a $10,000 balance on the line at closing would get an additional $50 voucher, for example, while someone with $100,000 in debt would earn a free round-trip ticket to anywhere in the continental U.S. or Puerto Rico, according to Amer Rafiq, a LaSalle sales banker.
Chicken and screwdrivers
Customers are bound to enjoy bargains for the foreseeable future as well. Dupuy says Charter One plans four home equity line promotions, one per quarter, in 1998, doubling what the bank has done in recent years. And Davis says Kentucky Bank has run two home equity promotions during just the past three years — compared with none during her previous 10 years in the department.
“Before this one was one with Boston Market, offering dinner for family of four, just for applying,” says Rafiq. “Before that was a free power screwdriver, and that was also a success.”
“People like free stuff.”